Sub-accounts
One of the key advantages of Manulife One is the ability to consolidate
your debt and enjoy one low rate of interest. However, there
may be times when you’d like to track some of your debt
separately or lock-in a portion of your debt at a fixed rate.
Manulife One gives you the flexibility to divide your debts between
up to five variable-rate sub-accounts and one fixed-rate sub-account.
Variable-rate sub-accounts
A variable-rate sub-account allows you to track a portion of
your debt separately at the same low interest rate as your
main account. If you make a large purchase, for instance,
you may want to see that it’s being paid down. Or you
may incur debt for investment purposes and want to keep track
of that debt to possibly deduct its interest from your income
tax.1
Variable-rate sub-accounts can be increased or paid down at any
time without penalty. In fact, you can pay any variable-rate
sub-account completely off at anytime, if you choose. When the
debt is gone, the sub-account will be closed automatically.
Fixed-rate sub-account
You may wish to lock in some of your debt at a fixed rate to
protect it against rising variable rates or to add some stability
to your cash-flow. Manulife One allows you to lock in up
to 75% of your current borrowings at a fixed rate and for
a fixed term of one to five years.
These fixed rates are not linked to the Manulife One base
rate but are determined independently and subject to change from
time to time.
For example
The Cornells currently have an outstanding balance of $180,000
in their Manulife One account. Part of this balance -- $15,000 – came
from recently purchasing a new car. They also used $50,000
to purchase an investment.
The Cornells would like to be able to track the interest and the
payments they make on these purchases so they set up two variable-rate
sub-accounts:
- Variable-rate sub-account #1 – Car $15,000
- Variable-rate
sub-account #2 – Investment $50,000
The remaining balance in the Main account is $115,000. Not long
after this, they decided to take half of their remaining balance
— $57,500 — and lock it into a two-year fixed-rate sub-account
to protect against future interest rate increases.
1 Borrowing to invest may not be appropriate for everyone. You should be fully aware of the risks and benefits associated with leveraged borrowing since losses as well as gains may be magnified. Preferred candidates are those willing to invest for the long term and not averse to increased risk. You should be aware that this strategy may have a higher risk as your home is offered as security for the loan and you will be required to make payments regardless of the performance of your investment. The value of your investment will vary and is not guaranteed, however you must meet your loan and income tax obligations. The dealer and advisor are responsible for determining the appropriateness of investments for their clients and informing them of the risks associated with borrowing to invest. Tax-deductibility of loan interest depends on a number of factors, with the Income Tax Act providing the framework for determining tax-deductibility. Readers should consult their own tax and legal advisors with respect to their particular circumstance.
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